On 7 December 2022, the U.S. Department of the Treasury announced that the U.S. and Croatia have signed an income tax treaty. The new tax treaty is the first of its kind between the two countries.
The treaty closely adheres to the U.S. model income tax treaty. Key aspects of the treaty include:
- Prevention of cross-border income taxation of salaries, wages, and other similar compensation in many instances
- Elimination of withholding taxes on cross-border payments of dividends paid to pension funds and on payments of interest
- Reductions in withholding taxes on cross-border payments of dividends other than those paid to a pension fund, as well as royalties
- Anti-abuse provisions intended to prevent instances of non-taxation of income as well as treaty shopping
- Dispute resolution mechanisms that include mandatory binding arbitration
- Standard provisions for the exchange of information to help the revenue authorities of both nations carry out their duties as tax administrators
The new tax treaty will enter into force after the U.S. and Croatia notify each other that they have completed the ratification procedures for their country.
Edward Kowalski, Esq., is Manager, Payroll Information Resources, for the American Payroll Association